Agencies Trail Media Properties in Serving Marketers

It is an early failure for the agency business, and it comes down to this. Consumers are online. Advertisers are demanding advertising that works online, yet no one is giving it to them.

Agencies, particularly interactive agencies, have failed to deliver on the promise of interactive marketing. Recent studies expose this failure. According to investment bank Morgan Stanley, while 12 percent of the average American's media consumption time is spent online, less than 2 percent of ad spending is online. The audience is there. The advertising is not. And the audience is growing.

Historically, ad spending maps to consumer time spent in a medium. So it is easy to assume that this gap will close and that online ad spending will increase. But who will deliver the results?

Recent market research that we conducted showed a clear view of the conflicts affecting online ad spending. It is the agencies that turned out not to be meeting the needs of their customers that want to advertise online. It is the media properties that appear to be delivering and that are economically motivated to deliver.

Advertisers clearly indicated that they want measurable results. They want to be able to run a campaign and say exactly how much they paid for a new customer or new lead. They want names, they want to re-market to those names and they want to use promotional and direct marketing techniques to reach these customers.

These same advertisers complained that their agencies typically wanted to focus only on online branding and branding measurement. They acknowledge that online branding can be done, and can be effective -- but it is not what they are asking for.

Advertisers are looking for a return on investment. They are working with limited budgets and maintaining a strict adherence to an ROI model with the money they invest in online marketing.

But most types of agencies are not set up operationally to deliver the kind of interactive direct response-based or ROI-based measurable marketing programs that their clients are requesting.

Take traditional agencies. They are structured to deliver general advertising such as broadcast and print. Most are focused on brand building and "keeping the creative flame." So they tell clients that this type of advertising is important online as well, and complain among themselves that "the clients don't get it."

Traditional advertising agencies alone should not be faulted.

Interactive agencies also have failed to meet the online marketing needs of clients. Advertisers indicated that their interactive agencies typically wanted to deliver an "interactive brand experience" with a focus on high-end creative execution. Requests for measurable customer responses, according to interviews with advertisers, were generally scorned. What's more, because interactive agencies insist that nearly every campaign be custom-built for an advertiser, rather than using existing technology, the high cost makes it hard for the economics to work. Promotional and direct marketing agencies also have failed to deliver. While these agencies typically understand the value of interactive marketing and understand that clients are asking for measurable, response-based activity, in most cases these agencies lack the technological capabilities or resources to deliver.

Consulting companies such as Ernst & Young, New York, and Accenture, Chicago -- sensing an opportunity with their clients -- have started offering marketing strategy and services, particularly for online marketing. But like interactive agencies, they usually build their solutions from scratch, which is prohibitively expensive. They also lack executable experience in delivering marketing programs.

So advertisers have little choice among agencies and seemingly little hope of getting what they want -- response-based online advertising that delivers measurable results.

What is the solution?

According to our market research and evidence in the trade press, more clients are turning away from agencies and asking online media companies to deliver results. These companies, including AOL, Yahoo, MSN and CNET, are beginning to add value to their media properties with functionality such as name and data capture, promotional tools, sophisticated direct marketing and re-marketing applications.

Not surprisingly, online media properties are delivering these services because they are economically motivated to do so. With cost-per-thousand rates at an all-time low, it is the media properties that are properly reacting with tools that make online marketing more effective. Moving beyond "eyeballs," media properties are delivering more advanced marketing solutions, like those cited above, and making them available to advertisers. Where needed, they are bypassing the agencies.

In January, CNET broke with Interactive Advertising Bureau standards to deliver large-size ads with informational and name- and permission-capturing functionality. When the ads showed immediate results -- 400 percent better click-through and happy advertisers like Oracle -- the IAB quickly announced support for new, larger ad sizes. The New York Times and other media properties quickly announced that they would follow CNET's lead. Other sites like Yahoo and MSN are testing sophisticated "beyond-the-banner" marketing tools as advertisers increasingly are turning to online media properties for marketing direction.

Advertising dollars will shift to where the customers are -- and the customers are online. Those who can align themselves with the needs of their clients will win. Those who can make online advertising effective for their clients will win. And, yes, there will be winners and losers.